Prices to remain stable post-MCO

The current trends point to the beginning of ‘a new normal’ in consumer behaviour and retail landscape


RETAIL inflation is expected to remain stable in the weeks following the lifting of the Movement Control Order (MCO) as consumers are likely to adopt prudent spending behaviours.

Contrary to the assumption that consumers would be lavishing on big-ticket items and entertainments having confined to home for a prolonged period, experts observed that consumers’ concern over weaker economy, job security and a possible higher household debt could limit their spending.

Nielsen Co (M) Sdn Bhd MD Luca De Nard said the common misconception is that once the MCO is lifted, things will go back to the way they were.

‘A New Normal’

“However, the trends we are seeing point to the beginning of ‘a new normal’ in consumer behaviour and retail landscape in Malaysia,” he told The Malaysian Reserve (TMR) yesterday.

As De Nard reckoned, a “wholesale” return to pre-Covid behaviours is unlikely. He foresees demand shifting based on three key trends including proximity retailing — shopping at provision shops, mini markets and convenience stores that are closer to home; home cooking; and online shopping.

“These trends have accelerated during the MCO and will continue post-MCO.

“This means that supply chains will have to adapt to demand for new products and services. So, companies will need to adapt to the shift in demand,” he added.

According to a recent study by Nielsen, consumers across Asia have signalled their eating habits may change permanently once the world moves beyond the impact of the Covid-19.

In the exclusive Nielsen study of 11 Asian markets, only Japanese consumers reported that they are less likely to change their eating habits as a result of the global pandemic, while in Malaysia, 62% said they would eat at home more often than before the outbreak.

“What is key here is that less than half of consumers said they will return to their former dining habits after this MCO is lifted. The reasons are lingering concerns on health and hygiene related to dining out, as well as concerns on cost,” De Nard said.

He also believes that Malaysians have always been price-sensitive shoppers, even before this health crisis hit shores.

“With four out of every 10 Malaysians experiencing some form of income loss as a result of the pandemic, we believe that Malaysians will continue to tighten their belts and adhere to their budgets when it comes to spending.

“Since the MCO was implemented, 30% of consumers believe that prices in the next three months will increase significantly, while 45% expect to see a slight increase. We believe that this will make them even more price-sensitive than they have been before,” he added.

As such, De Nard said businesses that want to “win back” consumers after the MCO is lifted will have to address concerns on health and hygiene in-store by putting in place social distancing measures, automating ordering and payment methods, and increasing focus on cleanliness.

He also reckoned that businesses should be cognisant of this shift in mindset when it comes to pricing their products.

“Now, with Malaysians feeling the financial impact of the MCO, they may already be dipping into their savings to sustain their daily life during this time.

“So, non-essential goods and services will be ‘deprioritised’ for the time being as Malaysians wait until the economy improves,” De Nard said.

In the first few weeks post-MCO, stigma on Covid-19 would leave households wary to go out and spend freely, notes Mohd Afzanizam

Sharing the same opinion, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid believes in the first few weeks post-MCO, stigma on Covid-19 would leave households wary to go out and spend freely.

“Post-MCO, we expect prices to be fairly stable as consumers are likely to remain cautious about their spending.

“Additionally, lower petrol prices should cap further upside as businesses would refrain themselves from jacking up prices as demand could still be very soft and sensitive to price change,” he told TMR.

In terms of retail margins at physical stores and online shops, Bloomberg Intelligence analyst Catherine Lim suggested that its declines could persist through 2020, even if the Covid-19 pandemic eases in the second half of this year, prompting sequential sales gains.

“Retailers will likely offer more discounts at the expense of profitability to stimulate buying and aid clearance of inventories unsold in the first six months of the year.

“Savings from lower merchandise costs on declines in prices of cotton and crude oil-related input are likely inadequate to offset the impact of reduced purchases by shoppers and higher discounts on retail margins,” she said.

MCO Spending Pattern

To put things into perspective, the Department of Statistics Malaysia (DoSM) found that in terms of the expenditure composition, food and non-alcoholic beverage group dominated the average expenditure with 44% during MCO compared to only 18% before the MCO.

This is followed by housing, water, electricity, gas and other fuels (19%), communication (10%), and miscellaneous goods and services (9%).

Meanwhile, the composition of expenditure on other groups contributed to less than 5%.

The study by DoSM on the impact of MCO to household expenditure showed that the average household consumption expenditure during the period is estimated to reduce by RM1,923 or 48%.

Whereas, the average household expenditure inclusive of financial expenses is expected to record a decrease of RM3,504 or 55% from the expenditure before the MCO.

“The average monthly household expenditure has fallen 55% from RM6,317 to RM2,813, while total household expenditure, excluding non-consumption expenses such as loan repayments, savings, income tax deductions, contributions to the Employees Provident Fund and Social Security Organisation, dropped 48% from RM4,033 to RM2,110.

“Clothing and footwear took the heaviest beating in consumption expenditure with a 95% decline, followed by transport at 89%, and restaurants and hotels at 86%,” it said.

The only gainer was food and non-alcoholic beverage at 27%, while communication and education remained unchanged.

Notably, households still purchase personal care items, where it contributed 43.9% from the total expenditure on miscellaneous goods and services.

Alcoholic beverages and tobacco also saw a steep decline of 64%.

DoSM’s survey also found that the cutbacks in spending were more severe among households in the higher income segments whereby the top 20% (T20) category recorded a 59% reduction in spending, followed by the middle 40% (M40) and bottom 40% (B40) categories at 48% and 41% respectively.

“Assuming that all households opt for the six-month moratorium, the decline in household spending would be 63% for T20, and 54% and 49% for M40 and B40 respectively,” the statistics department said.

DoSM also highlighted that the household expenditure pattern during the MCO is expected to differ from the expenditure pattern before the MCO.

“This is because the expenditure of households is more focused on goods and services that are really required by the households such as food, utilities, health and communication,” it said.

This, in turn, would lead to a fall in private expenditure for the first quarter of 2020 between 8% and 10%.

The department also believes the delays in spending by households due to the MCO and their concerns on Covid-19 will delay the economic recovery process.